The lack of adoption of high-value medical care is partly driven by the contracting practices of health care intermediaries with misaligned incentives. Large national commercial carriers (BlueCross, United, Cigna, Aetna) exemplify misaligned incentives. Carriers provide both insurance and administer health plans. Small business (<200 employees) usually provide “fully insured” health plans to their members by paying carriers to both administer health plans and carry the financial risk of paying out medical claims. Large businesses (>1000 employees) generally have “self-insured” health plans, where the carriers only administer the health plans and the employer carries the risk themselves. By carrying the risk on their own members, businesses don’t have to pay a risk premium to a third-party to carry risk.
Carriers generate most of their revenue from the fully insured business. Carriers profit on fully insured business is capped by regulation on Medical Loss Ratios (80-85% depending on state and group being insured). Carriers currently operate near the minimum ratio. Medical Loss Ratios mean that the carrier’s profit is positively correlated to the total cost of medical claims and activities. These regulations result in incentives to increase the cost of medical claims and caps incentives on promoting high-value care. These incentives manifest themselves through increased prices and acceptance of low-value medical activity.
60% of all private health care expenditure is from self-insured firms. Unlike fully insured employers, where risk is spread among an insurance pool, self-insured employers have a direct relationship between efficient use of health care and their bottom line. Self-insured employers are the only incentive-aligned payer in health care; they are responsible for providing care to their members and paying claims. However, self-insured employers rely on the contracts (“networks”) that carriers negotiate. With carriers serving as intermediaries, self-insured employers have little control over a health care supply chain designed to serve carriers’ interests
Self-insured health plans are often headed by HR departments without the capacity to manage health care in a cost-effective manner.
Empower employers to use market forces to promote high-value provider practices by providing them with guides to implementing high-value care. To power this process and promote a competitive environment, employers can procure provider contracts through a purchasing process. Employers can select a preferred provider and implement plan design changes (co-insurance, deductibles, etc.) to incentivize their employees to use the selected preferred provider in exchange for lower unit costs from that provider. During the procurement process for preferred status and written in the Request for Proposals (RFP), employers can specify requirements that services providers must meet to be selected. To implement this process, a firm or group of firms in a given geographical region go by procedural category and competitively procure preferred health care service providers (physicians, outpatient, and inpatient).
Implementing this project requires working closely with experts in high-value health care. Those experts are needed to lead employers in developing best practices.
Project Pillars & Deliverables
1. Procurement best practices
- Guide to best practices of RFPs, demand aggregation, & procurement process by procedural category
2. Provider performance data (hospitals & physicians)
- Guide to find data on provider ability to avoid adverse outcomes & practice medicine appropriately
3. New benefits designs & programs for plan administrators
- Guide for plan design options
- Guide for best practices of eligibility confirmation
4. Member engagement
- Guide to engage members through incentive programs
- Guide to present info to members to reinforce utilization of high-value care (example above)
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